Trump Administration to Begin Student Loan Collections
The Trump administration plans to put millions of defaulted federal student loan borrowers into collections starting Monday (May 5).
This action threatens the confiscation of tax refunds, federal benefits and wages from affected individuals. The move marks a significant policy shift, reversing a program taken by the Biden administration that attempted broad student debt forgiveness and extended a no-consequences period for nonpayment through the 2024 election.
Approximately 5 million borrowers are currently in default, many of whom have not made payments since the pandemic-era pause, intended to alleviate borrowers’ financial strain amid the economic downturn, ended in 2023, according to The Wall Street Journal. The Department of Education estimates millions more borrowers are on the cusp of default. Under current rules, borrowers are considered in default after failing to make payments for at least nine months.
The department has indicated it will start putting borrowers into collections on Monday, at which point the government may start withholding federal benefits or garnishing wages. The first collection measures are planned to start within 30 days.
This return to standard collections practices is expected to exert financial strain on borrowers who had reoriented their budgets during the payment reprieve. The added obligation comes as many borrowers face other economic headwinds, including a job market that is tighter than the post-COVID boom period.
Analysts express concern that restarting payments or facing penalties could sap consumer spending across various sectors at an already uncertain economic moment thanks to the Trump administration’s erratic tariff policies. Bloomberg previously reported that student loan defaults could reduce overall consumer spending by as much as $63 billion a year.
Currently, 42.7 million borrowers owe a total of more than $1.6 trillion in student debt, according to the Department of Education. Experts estimate that within the next few months, debt belonging to debtors in default could total 25% of the total federal student loan portfolio. Conversely, just 38% of borrowers are current on their student loans.
In light of this growing amount of defaulted debt, House Republicans recently introduced a plan to put limit on federal student loan borrowing of $50,000 per undergraduate. Consumer advocate groups have attacked the proposal as an attempt to restrict access to higher education by shifting borrowing to private lenders, which offer fewer borrower protections.
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